Despite stagnant traffic growth, the U.S. domestic air freight and express industry continues to register gains in revenue, shows U.S. Domestic Air Freight and Express Industry Performance Analysis 2007, an annual report from Seattle-based aviation consulting firm Air Cargo Management Group (ACMG).

 

"U.S. domestic air freight and express industry revenues reached $32.49 billion in 2006, a 3.8-percent increase over 2005 and a new record for the industry," reports Robert Dahl, ACMG project director.

"Gains in 2006, split about equally between the express and non-express segments of the industry, resulted from rate increases implemented by express carriers and from fuel surcharge impacts," he adds.

Traffic volume for the industry totaled 15.21 billion ton-miles, up only 0.5 percent year-over-year from 2005, while the number of domestic shipments moving through the major express networks - 6.7 million per day - decreased 1.3 percent versus 2005, the report finds.

Many of the changes that have taken place recently in the domestic market can be traced to consolidation in the express area, according to ACMG.

 

Airborne Express, for example, was acquired by DHL in 2003; UPS snatched up Menlo Worldwide Forwarding in 2004; and BAX Global became part of Deutsche Bahn/Schenker in 2005. Last year, however, was void of major acquisition deals in this sector.

"No major developments of this type took place in 2006," Dahl notes, "but in the first half of 2007, DHL announced it is buying a stake in ASTAR Air Cargo, and ASTAR is attempting to acquire ABX Air. It remains to be seen how these moves, if consummated, will impact the industry."

One element of the industry that has not been impacted is FedEx's position as the leader in the express market - in 2006, FedEx retained a 42.2-percent share of daily shipments. UPS came in a close second, with 37.5 percent of shipments, while DHL, which does not provide shipment count reports, is estimated to hold a 16.3-percent share.

The integrated express companies as a group generated $29.09 billion, or 89.5 percent, of the industry's total revenue in 2006.

 

Domestic freight handled by combination carriers and freight forwarders amounted to $3 billion - 9.2 percent of the total revenue amount - and domestic mail (exclusive of the major USPS-FedEx contract) represented $399 million, a mere 1.3 percent of the total.

Partial-year results for 2007 indicate that this year is following the same pattern as 2005 and 2006, with positive financial results despite flat traffic levels.

 

"High fuel prices, and the surcharges that result, continue to inhibit air cargo growth, and encourage shippers to look at less-expensive transportation alternatives now available in the form of expedited trucking services," notes Dahl.

 

The U.S. market, however, remains the largest single air freight/express market in the world.

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On Aug. 1, 2007, a sweeping national security bill was cleared by a Senate-House conference committee and sent to the White House for the President's signature.

 

The bill, H.R. 1, combines several pieces of legislation, including the Surface Transportation and Rail Security Act (STARS). When it becomes law, moving hazardous materials via highway and rail will be more complicated and expensive.

The new rules require carriers to define the routes hazmat shipments would take, track those shipments more closely, and work with shippers and all levels of government to develop security and emergency response plans.

Few object to the intent of the program, but carriers warn that compliance will be laborious and expensive, and that those costs will be passed back to shippers. Another criticism is that the bill's terms regarding what commodities it covers are too vague.

"The bill does not contain a clear definition of what is considered hazardous material," says Tom Walker, director of chemical markets and compliance at LTL carrier A. Duie Pyle, West Chester, Pa.

 

The bill makes several references to "flammable," but vanilla extract, for example, is a flammable commodity, Walker points out.

The bill also includes provisions for the Federal Motor Carrier Safety Administration (FMCSA) to review the hazmat plans of every shipper and carrier, but does not say what FMCSA is supposed to be looking for.

"This is a well-intended bill, but the devil is in the details. On what criteria are shippers supposed to review truck security? There are no specifics and no thresholds," Walker explains.

Another concern for both carriers and shippers are the costs - such as those from record-keeping or additional equipment and electronics - associated with the bill's new compliance requirements.

"The LTL sector has not invested as heavily in tracking equipment and software as bulk carriers. Security may be better served with a uniform route structure and complete dashboard to desktop tracking, but it will be restrictive and expensive," notes Walker.

Part I of the STARS bill covers railroads. Rail carriers handling "high hazardous" materials will have to develop risk mitigation plans including alternative routing and temporary shipment suspension options. Railroads would have to use those options when security levels are high or severe, or when specific threats are detected.

Part II addresses highway haulers. Under the bill, the U.S. Department of Transportation (DOT) will be responsible for documenting existing and proposed routes for radioactive and non-radioactive hazardous materials, and developing a framework for using a Geographic Information System-based approach to characterize routes in the National Hazardous Materials Route Registry.

 

The agency would need to consider the concerns of the public; motor carriers; and state, local, territorial, and tribal governments about the highway routing of hazardous materials.

Under STARS, DOT will also have to develop a tool that allows state officials to examine potential routes to assess security risks and explore alternatives.

In addition, it will be required to assess  the safety and national security benefits of existing requirements for route plans for explosives and radioactive materials. DOT also will require motor carriers hauling hazardous materials to maintain written or electronic route plans.